KEY TAKEAWAYS:

--The need for long-term care insurance is urgent, given the aging population, but purchases are declining.

--Technology now allows for streamlining the application process, as well as claims, and for spotting those who might be especially at risk and helping them avoid problems.

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There are nearly 56 million Americans aged 65 and over, up from just over 40 million in 2010. This explosive growth of aging Baby Boomers means the U.S. is set to witness a demographic shift that it is ill-prepared for. Less than 10% of this demographic currently has a plan in place for long-term care insurance (LTCI) despite the widespread, legitimate concern among aging adults about outliving their retirement savings. 

LTCI policies have experienced a steady decline in sales, with 2022 marking the lowest sales volume in over two decades. While perplexing on the surface – given the seriousness of the need – this trend is understandable when you consider heritage issues like inaccurate assumptions, which led to significant rate increases, lack of product innovation, agents and carriers dropping out of the market and overall consumer perception of the segment.

We can’t let this continue, though. To safeguard elderly individuals from financial insecurity during their retirement phase, the insurance sector needs to foster innovation that will ignite behavioral and buying changes in this category, as we have seen innovation drive growth in other verticals.

What Can Innovation Improve?

Let’s start at the beginning. Innovation can streamline the LTCI application process, which has traditionally involved physicals and lengthy procedures that frustrate consumers and result in high rejection rates. 

The ability to accomplish this is here, right now. With the availability of improved risk selection and application processing techniques, insurance products available now can provide decisions within an hour. This streamlined approach – which we know consumers are demanding in every category – has led to better risk selection and significantly improved consumer experiences.

Innovation is also transforming the way insurance companies handle claims, making the process more efficient and precise. Automated initial claims routing streamlines the process, so claims can be swiftly directed to the appropriate department or personnel for evaluation and next steps. We must replace legacy systems with automation that saves time and resources, leading to faster response times and reducing the risk of claims getting lost or mishandled.

Venture capital recognizes the need and size of the opportunity, which is why recent VC investments in insurtech companies are upward of $11 billion. Where money flows, innovation follows. Happily, much of this money will focus on resolving known issues and friction points in the insurance landscape, leveraging machine learning to improve risk selection during the application process, generating better insights into what is driving morbidity and mortality. 

If done properly, this innovative approach will lead to more accurate and stable pricing, making LTCI more affordable and accessible to middle-class consumers, a revolution that will help offset the years of negative news.

See also: Time for a 'Nudge' on Long-Term Care

Other opportunities exist in identifying potential policyholders who might require assistance and make a future claim for their health challenges. Those opportunities require insurers to analyze massive data sets mapped against population health metrics.

By using data analytics and predictive modeling, insurance carriers can reach out to these individuals, offering assistance, guidance and resources to address their needs before a crisis occurs. This don’t-wait-till-it’s-too-late approach can prevent or mitigate potential problems, helping policyholders maintain better health and quality of life.

For example, some insurance carriers are now incorporating innovative wellness programs into their pre-claim processes. These programs offer policyholders access to targeted, personalized health and wellness services like fitness programs, nutrition counseling, mental health support and preventive screenings. By encouraging and “gamifying” healthier lifestyles and early intervention, these insurers reduce the chances of claims arising from preventable health issues while also improving the customer experience overall, building stronger and deeper connections.

Messaging Matters, as in Any Other Industry.

As part of an innovative re-evaluation of the industry, insurance companies are seeking novel methods to engage and educate consumers about LTCI. They recognize that traditional approaches may not always effectively convey the significance of long-term care planning, given the complex nature of the subject matter. This includes applying the learnings from other categories delivering powerful content in the right way at that right time to the right audiences.

Educating consumers through various channels, such as interactive online platforms, mobile apps and personalized content, can address the LTIC gap. We can simplify complex insurance concepts, highlight the potential risks of not having long-term care coverage and demonstrate the value of investing in it early. Add to that a more sophisticated and accessible distribution strategy, and we have the ability to strengthen the LTCI market, making it more sustainable and responsive in the face of evolving healthcare needs.

Effective distribution channels are essential in creating awareness of the importance of LTIC and encouraging purchase. These channels are the bridge between insurance companies and potential policyholders, facilitating the dissemination of crucial information and guiding individuals through the purchasing process. 

What Can States Do?

States can also play a pivotal role in driving innovation in the insurance industry overall, particularly with LTCI. Growing recognition of the challenges posed by an aging population and the rising costs of long-term care have prompted several states — including Washington, California and Minnesota — to implement their own state-run LTCI plans. These state-driven initiatives offer an opportunity for experimentation and innovation, and they are to be commended.

Control over the plan's structure and governance enables states to tailor policies that strike a balance between affordability for consumers and financial sustainability for the program. This Goldilocks solution allows them to offer in-demand, innovative features such as comprehensive home-based care options, technology-enabled services and early intervention wellness programs. The growth of the hospital-at-home category will inevitably become part of this.

Another benefit of localization is that states can analyze their unique demographic trends, healthcare usage patterns and long-term care service availability to design more effective and targeted LTCI offerings. They can use advanced data analytics to identify high-risk populations and design interventions to mitigate long-term care needs. Moreover, by working closely with insurers and long-term care providers, states can foster partnerships that encourage innovation and collaboration in the long-term care space.

Large, innovative cities can also take up this challenge for their residents and also their former employees, because their pension benefit systems are under massive economic pressure.

See also: Long-Term Care Insurance Must Evolve

Final Thoughts – Addressing the Elephant in the Room

As with many massive issues, solving the long-term care financing question has been difficult to address head-on, in all its manifold complexities. It has challenged agents and consumers but must be addressed to protect against this significant cost that is literally around the corner.

We should be encouraged by what we are seeing, as insurtech companies are introducing innovative solutions that can revolutionize the insurance industry and fill this gap. These efforts are driven by our social obligation to serve the needs of the growing elderly population, as well as the business opportunities that await. We can’t predict where innovation will emerge next, but we can be certain it will shape the future of both the insurance sector and the thriving insurtech industry in new ways. And not a moment too soon.

A question that has been rattling around in my head for a while crystallized for me this morning when I read that a famous Nordstrom had closed in the heart of San Francisco. Then the Washington Post hammered the point home by leading the paper with this headline:

"How the ‘urban doom loop’ could pose the next economic threat."

My question has been about the long-term effects of the pandemic on work in offices. If enough people stay home to work, then businesses don't need as much office space. Restaurants, bars, coffee shops and other retail establishments see less traffic, and many close. As they close, downtowns become less attractive as places to live and work. Retail traffic declines further, fewer people come downtown, businesses need less office space. And down and down and down we could spiral,... meaning owners of commercial real estate could lose so many tenants that they default on loans.

That's where this could really become an issue for the insurance industry, because life insurers are the second-biggest holders of commercial real estate debt, behind only banks. Any long-term realignment of work and other activity in cities would also affect many other lines, notably workers' comp but also commercial property/casualty and others. 

No big change will happen soon. If cities are headed toward major problems, they will unfold over at least the next couple of years as a slow-motion track wreck. But it's always better to be prepared. 

So let's have a look. 

The Washington Post article opens with this grim picture:

"In Indianapolis, the technology giant Salesforce is paring back a quarter of its office space in the tallest building in Indiana, where it has been a key tenant for the past six years. In Atlanta, the private investment giant Starwood Capital defaulted on a $212 million mortgage on a 29-story office tower. And in Baltimore, a landmark building sold for $24 million last month, roughly $42 million less than it fetched in 2015."

If that isn't enough for you, The Commercial Observer wrote in June: "The shifting of the tide and subsequent distress has been plain to see: Brookfield defaulted on $784 million in loans tied to two Los Angeles skyscrapers in February; Blackstone sent a $270 million CMBS [commercial mortgage-backed security] loan on a Manhattan multifamily portfolio to special servicing in February; GFP Real Estate defaulted on a $130 million mortgage-backed securities loan for 515 Madison Avenue in December; and just last month RXR defaulted on a $260 million loan on 61 Broadway."

The Post says: "All across the country, downtowns, office spaces and shopping centers are at risk of becoming ground zero for a new economic hazard: the urban doom loop."

It adds that, while problems facing New York, San Francisco and some other major cities are getting most of the attention, "many economists are even more worried about midsize cities that have fewer ways to offset the blow when a major company slashes office space, the sale price of a building craters, or a downtown turns into a ghost town."

Some $1.5 trillion in commercial real estate debt is coming due by the end of 2025, and refinancing much of it could be tough. Banks' appetite for lending has diminished, especially for anything that feels risky, following the recent failures of three major banks. In addition, while inflation has declined significantly over the past year, markets seem to now be betting that the Fed will keep interest rates high for some time, to try to head off a resurgence -- and a building that can carry a loan at 3% may have a much harder time making ends meet with a loan at 7%.

In other words, less financing will be available, and what is available will cost a lot more. Those would be serious problems even if you could set aside the fact that building owners are facing what looks to be a fundamental decline in the need for office space -- and you can't set that issue aside.

In the quarterly podcast I do with Dr. Michel Leonard, the chief economist at the Insurance Information Institute, he said lenders have been cushioned thus far from the full effects of the shift to remote work because of "something fairly unusual. We're not seeing cuts in rents."

He adds, though, that "once there is less uncertainty around [the number of people returning to offices], the bankruptcy process will start." And he adds his voice to those saying that they don't expect big changes from here, that we've probably found our new normal.

"We did a survey of our members, and about 80% of them,... for three days a week, are not in the office," he said. "Almost all of them have at least one day out of the office. And that has stabilized. The insurance industry was willing to go virtual, but [people] really resisted coming back to the office."

The Post notes that the surprising strength in job creation has softened the blow to building owners and their lenders -- just imagine what a recession would have done to office occupancy rates -- and that many cities still have reserve funds from the unprecedented aid that states and the federal government offered during the pandemic.

So far, ratings agencies aren't raising any alarms about life insurance companies, despite their heavy exposure to commercial real estate debt. The reason: The companies generally have high-quality debt. They typically are at or near the front of the line to get repaid in the event of a default, and the buildings they've lent to are generally performing well. 

But I've learned to be cautious. Not only did ratings agencies grossly underestimate the dangers lurking in home mortgages in the leadup to the Great Recession of 2007-09, but I was running the Wall Street Journal bureau in Mexico City in 1994, when the country went from being a paragon of economic reform to being a basket case almost overnight. We had seen and reported on some warning signs as the country's foreign currency resources dwindled over the course of the year, but nobody was predicting a devaluation -- until it happened in December, and the bottom fell out of the country's whole economic program.

In any case, insurers will have to continue to adapt as cities do. For now, workers' comp carriers are prospering as fewer people are going into office settings and injuries are declining. In theory, the reduction in commuting should reduce vehicle accidents -- but theory isn't reality, and people seem to be slow to drop the bad habits, especially excessive speeding and distracted driving, that they developed while streets were empty during the pandemic. Commercial lines carriers will have to adapt as traffic at restaurants, bars, coffee shops, retailers, etc. morphs, and as establishments perhaps migrate to suburbs and exurbs, where the people are. And so on.

There will, of course, be wildcards, too, that will affect how cities develop. Dr. Leonard spoke of what he called "theme park-ification" -- the development of open spaces, including parks -- as a trend that is making cities more attractive. The spread of electric vehicles will reduce noise and pollution. In time, autonomous vehicles could allow for fundamental redesign because of all the space currently devoted to parking that will be freed for other uses. Cities could also benefit from the broad efforts to reduce climate change -- it's much more efficient to heat or cool an apartment building than it is to heat or cool 150 individual homes, because, instead of leaking to the outside, one person's heat or cool air helps those on either side and above and below heat or cool their apartments. On the flip side, crime tends to rise in cities if they empty out,

The wildcards are mostly long-term issues, though. What I'll really be watching is what happens over the next couple of years with commercial real estate, and to their lenders.

Cheers,

Paul

Well, that was fast.

Just a week after the California Public Utilities Commission gave GM's Cruise and Google's Waymo permission to operate fully autonomous robotaxi services for a fee at all hours in all parts of San Francisco, the state's Department of Motor Vehicles ordered Cruise to cut in half the number of automated vehicles (AVs) it's using.

Following two collisions involving Cruise cars, one of which injured a passenger, the DMV added that the restrictions will stay in place until Cruise “takes appropriate corrective actions to improve road safety.” 

For good measure, the robotaxis seem to have made a full-fledged enemy out of the San Francisco Fire Department. It had argued hard against licensing the robotaxis to begin with, saying they've been getting in the way at emergency scenes. The SFFD now has more ammunition: One of the collisions occurred when a Cruise vehicle pulled into an intersection and was hit by a fire engine on its way to an emergency.

So, how big a setback is this for AVs?

In the short term, the cut in service is certainly a public embarrassment.

While the Cruise car that was hit by the fire truck had pulled into an intersection on a green light and while Cruise executives say its sensors picked up the fire engine's sirens, the fact is that the vast majority of human drivers would have pretty much frozen in place while trying to figure out the source of the sirens, and the Cruise car kept going. That a passenger was hurt -- albeit with what Cruise called "non-service injuries" -- compounds the PR problem.

The other collision apparently wasn't Cruise's fault -- the company says its data show that its car moved into an intersection on a green light and was rammed by a car running a red light at high speed. But this collision will still get lumped in with the one Cruise caused, even if Cruise's description of the accident proves completely accurate.

For good measure, a Cruise car got confused by some road construction in San Francisco last week and drove onto a pad of wet cement. The car had to be pulled out by a tow truck. A week earlier, some 10 Cruise cars had just stopped in the middle of the street in the North Beach area because they lost their wireless connection to their home base when they neared a music festival where fans had overloaded mobile networks. 

Yes, all the recent problems have involved Cruise's vehicles, but Waymo's cars will face skepticism about safety, too. Advocates of AVs complain that scores of other car accidents happened in San Francisco last week without drawing any scrutiny in the media, but that's life in the fast lane. Any problem with an AV will be news for the foreseeable future and will taint all AVs. 

Robotaxis already faced heavy opposition in the hearings in front of the California PUC, which approved unlimited robotaxi use in San Francisco by a 3-1 vote two weeks ago, and the opposition now gets another shot because the DMV is asserting its jurisdiction. It remains to be seen just how skeptical the DMV will be about robotaxis and how much new opposition the SFFD and others can mount. 

What happens in the medium term really depends on the safety record of the robotaxis in the coming weeks and months. If Cruise or Waymo keeps having weeks like this last one, there will be real delays. If problems go away, then AVs will be back on the path of "radical incrementalism" that I described last week. But problems have to disappear, not just diminish, at least for weeks and probably for months. The attention caused by the accidents and the DMV action has raised the stakes.

In the long term, if the technology works as well as I think it will, not much about the rollout will change. Even San Francisco issued another vote of confidence last week, launching an autonomous bus service on Treasure Island, the site of a former Navy base in San Francisco Bay. 

And some of the recent press has been positive. Three New York Times reporters, for instance, took trips in Waymo robotaxis last week and found that, while two of the cars were a bit too slow and cautious for the riders' taste, "the ride was so smooth, the novelty began to wear off, turning a trip to the future into just another journey across town." 

We'll have to wait and see whether the public mood heads in that direction -- or not.

Cheers,

Paul

 

Listen Now:

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Paul Carroll

Hi, I'm Paul Carroll. I'm the Editor-In-Chief at Insurance Thought Leadership. I'm joined today by Dr. Michel Leonard, who is the chief economist, among other things, at the Insurance Information Institute, the Triple-I. We have these quarterly conversations that I look forward to so much, about the state of the economy and how it plays out in insurance. Today, we're going to eventually get into a conversation about cities and their future; and how the hybrid work model or non-hybrid work model and so forth affects things, how mobility redesign affects things and so forth. But I figure we can get started by talking about inflation and the economy and get your update. So, where do you think we are right now, and where are we going to be in the next quarter?

Dr. Michel Leonard

Paul, it's always a pleasure to speak with you. And I look very much forward to these, as well. I like the mixture of the hard data and so forth, and then trying to adjust the crystal ball, but also think about the demographic and social components of this. So, we do not expect that there will be a recession in 2023. Nor in 2024. On the contrary, all of the indicators indicate that we're heading to a recovery, both overall and in insurance, and we'll get to that, as well.

But the issue here that keeps me a bit awake at night is the fact that, a year ago, economists kind of said, all of our models are telling us that we're going to recession, and this is what should happen. Well, sometimes it doesn't happen according to the models. And that's exactly how it unfolded; we did not have a recession.

But because we expected it so much, companies, especially in corporate America, cut down significantly on capital investment and capital spending, and that really slowed down the overall economy. In insurance, it slowed down the underlying growth for commercial real estate, for commercial multi-peril and for commercial auto.

I'm hoping that, this time around, we end the year around 2% or 3% [GDP growth]. But the issue here is Q3 will probably be lower than Q2. We don't expect [growth] to have to go negative, though we could go negative, Hopefully, Q4 is much stronger, which has happened in the past. So, the issue is that we're going to have a weaker Q2/Q3, and how weak it is will [affect] the rest of the year. But [we’re still] going to have a positive year at the end….

But I'm concerned about what happened in Q1 last year. You know, sometimes just predicting things makes them happen because of the reflexivity there, like [investor George] Soros used to call it; you expect things, you act accordingly, and then you bring about those things.

Carroll

I've heard people talk about the Goldilocks economy or the Goldilocks recovery: You know, not too hot, not too cold, just right. As we were talking in advance of this, you used a term I had not heard before: the Godot economy. And I know how much you'd like that play, right? I'm just kidding; you told me you hated it. But it does seem like we are in sort of a Godot economy, where we've been waiting so long for the recession, and it's just not coming.

Leonard

You know, I'm an economist and a data scientist. And a lot of times, economics focuses on models that allow us to understand relationships…. Our forecasts are about understanding the way the different blocks come together. Data science is really focused on the forecasting. When we look at the data without a model, it does not, as I was pointing out, lead to a recession. But I want to talk a bit about employment, because when we think of the timing here, that's the big element.

Yes, employment has been resilient. But there's a whole narrative right now in the financial press, and we all kind of bought into it, that the American workers are doing great. We're doing well, but we're not doing great. And then if we scratch beneath the surface, we're not doing that well.

Yes, we've remained employed. So [regardless] of monetary policy tightening, regardless of capital expenditures being cut… we didn't see mass layoffs. But when we get to this argument that American workers have all this bargaining power, I'm not seeing it in the evidence. I'm not seeing it in wage increases. Yes, we had a good wage increase, 4% or something like that. But inflation was above that, so we all have less purchasing power.

Decades ago, three or four decades ago, 80% to 90% of corporate America provided cost-of-living increases. We didn't see that… as a pay raise. It was a cost-of-living increase. Today, there's only about 10% of companies that do that. And quite often it's sold as a pay increase.

So, yeah, the American worker is doing well; he or she is employed. But we have to think about that…. There’s some weakness, and I think it's really going to be directly impacting… the strength of the recovery.

Once more people start commuting again -- you and I have talked about how that is a big expense, especially if you've moved to the exurbs as opposed to the suburbs. From the city, you're going to have to pay for the subway, and the suburban trains, or you're going to have to drive more and spend more on that. So there's not going to be as much disposable income. One of the reasons this contraction has felt good is that we have had this disposable income. Inflation was really high, but it got kind of compensated, though not really from food. I was in New York a few weeks ago, and I was just shocked. An entree that would have been -- and I am using New York prices, so not that relevant everywhere -- but an entree that would have been $15 to $20 is now $30 to $40. Even in the best restaurants, I don't remember seeing the number four in front of the [price]. And that's the same with a TGI Fridays and the chains: What used to be $10 to $15 is now $25. For a family of four going out on a Friday, that's already $100 to $150. That money, if you add it up, directly correlates with the less spending on commuting. So, let's wait to see how that impacts disposable income and disposable spending, once we recover going into 2024.

Carroll

You started to talk about the recovery. How do you see it playing out? I mean, you've said Q3 is likely weaker than Q2, Q4 will likely be stronger, maybe a lot stronger, depending on how weak Q3 is. In terms of the numbers, but also in terms of the specific parts of the economy and sort of how they start firing on all cylinders again, how do you see the recovery developing?

Leonard

…There's so much uncertainty around what the numbers are. As economists, we normally go back and we [change] decimals; right now, we're moving digits, like the actual percent. Q3: Don't get alarmed if it's weaker. The weaker it is, the stronger Q4 will be. The closer [growth is in Q3] to where we are right now, the flatter it will be to the end of the year. We end the year around that 3% to 4%. I think that's a good range, basically on target for the Fed.

When does it start getting better? It starts getting better in Q1 for the wider economy. The Fed needs to go and start signaling that it’s easing. This is one of those cases where it is best if we "don't fight the Fed." There are some things in economic theory that work, and that's one that works. What does that mean? It means that the Fed will start signaling that it will ease, and it already has…. And then you're going to see, probably in Q4, companies starting to plan on investments, hiring and so forth, which means that, by the first half of next year, we're starting to see a real recovery…. And the stock market will probably recover….

What does all this mean for insurance policy? Insurance [growth] normally lags [the overall economy] by about two quarters. Right now, we're actually doing better. Our inflation is decreasing faster, our growth is picking up. Our numbers indicate that, going into next year, [inflation] in our replacement costs are going to be below 2%, while overall inflation will be around 2% to 2.3%…. We're going to be in a good place from an insurance standpoint…. Again, everything is about the Fed. Not the rate decisions, but the telegraphing….

So, again, by 2023 Q4, think economy recovering overall; for mid-year 2024, think insurance really picking up in terms of underlying growth by the end of 2024 Q4, and 2025 being the perfect alignment of economic indicators for peak insurance growth.

Carroll

That sounds sounds good to me. So let's talk about cities a little bit. You and I talked a bit about this before, and you mentioned the movement to the exurbs and so forth from the suburbs and how the mix changes. It seems to me that the return to work in offices is slow enough that that's going to cause a big change in cities. Boston is offering a pilot program that gives companies 75% off their taxes if they turn an office building into a residence. And I think there just are lots of things going on that are going to shift away from office buildings and have all sorts of ripple effects. And there's some other things going on, as well. What do you see happening in cities?

Leonard

That thing about Boston, I didn't know that. But I do know that there was kind of a similar conversation with WeWork, [maybe] moving WeWork into communal living or just outright apartments and lofts because they tend to be in downtown areas. Now, from an insurance standpoint, commercial property, commercial multi-peril, that's a big question for our industry. And so far, the fact that there's been fewer people at work… has been good for [workers’ comp] lines…. Rents haven't been cut, and therefore a lot of the value of the property hasn't adjusted, so it hasn't impacted our premium and premium growth as much as one would expect….

Now, booms and busts, that's the way the real estate market works. And it allows for great building, overbuilding. It allows for beautification and so forth. And at one point, supply and demand come back into play and create a bust; the bigger the boom, the bigger the bust. What's happening right now is that the bust process is being delayed, and it is being delayed for something fairly unusual. We're not seeing cuts in rents.

One of the reasons is, as you pointed out, a Waiting for Godot [or even] a Re-Waiting for Godot, and Godot is not going to show up. We don't think that the American worker will go back [to cities] in the same numbers…. We did a survey of our members, and about 80% of them, or something like that, for three days a week are not in the office. Almost all of them have at least one day out of the office. And that has stabilized. The insurance industry was willing to go virtual, but [people] really resisted coming back to the office….

Once there is less uncertainty around [the number of people returning to offices], the bankruptcy process will start. And at that point, there'll be that supply and demand pricing and rent changes that will allow for folks who want to go back. And that's an opportunity.

Carroll

That all makes sense. I'm thinking of a nephew of mine who's a commercial real estate broker in the Washington DC/Baltimore area. He's worried about a death spiral for cities. If people don't go back to work, then you don't have as many people going to the bars after work or going to the restaurants. And maybe the restaurants are jacking up prices because they know Michel is coming, or hope lots of Michels are coming, and they're going to milk them for as much as they can. If the restaurants aren't thriving, then the young people aren't going there. And then people start leaving the city and so forth.

I certainly don't think we're there yet. But I do think that that's a long-term trend to watch.

Another one I've mentioned is this idea of mobility. I've written a fair amount about driverless cars, in particular, and about transportation, in general. If you go back 100 years, cities really were designed for cars. And there's an awful lot of space in cities, just street parking, for instance, that is eaten up by cars. These days, it seems like some cities are rethinking their design. For instance, it costs you an awful lot of money these days just to bring a car into New York City, and that is changing the dynamics there. I think cities are going to redesign things more for people and less for cars. You'll wind up with this mix of driverless cars, taxis, regular cars, scooters, pedestrian walkways and so forth. If you look out, certainly 10 to 20 years, there are going to be very significant changes to cities.

Leonard

A few things there that I want to unpack. The transformation of cities is expensive. For almost 30 years, we beautified cities, but we didn't invest in highways and so forth, with some exceptions. But now we have all the money from Build Back Better coming in. And that money is starting to show in New York and other cities; highways are getting better, etc. So that's going to accelerate this shift….

I can see how this transformation will lead to a different kind of city. And I think what's important here, Paul, is to keep in mind that we've seen in the last 30 years what I call the theme park-ification of cities, also referred to as gentrification. We've made cities beautiful, but we also took away the reality of cities, with urban areas that support the industrial component having been outsourced to the exurbs. The cycle of cities, with immigrants coming in and having opportunities to open a small store, a lot of that has disappeared. I was reading recently that most of the immigrant-owned stores, the small businesses and the new businesses, are now in malls in suburbs, because price-wise it makes more sense.

Once you take away this revival, this transformation, this rejuvenation of a city, you'll also take away a lot of what makes a lot of folks willing to pay the rent, willing to spend as much. You get to a point where I'm not going to the city because, with inflation, restaurants are very expensive. I used to like music, but music is really not happening, partly because bars have been closed or they're too expensive…. Young people say, well, I can have a family or I can be in a city.

I'm concerned about how fast the change happens. I think there's an opportunity there to see a new kind of city…. And I mean transformation. There's an opportunity to see the emergence of a new approach, and mobility can be a part of that, along with more open spaces.

You know, I was doing a paper recently on the ability to have green spaces, the ability to have urban forests, the removing of cars in favor of being able to walk around; these are very attractive to corporate investment. There's a good value proposition there for companies. What made the corporate campus in the suburbs so attractive in the ‘60s and in the ‘70s, was ease of life, the fact that it was affordable. The exurbs are not that affordable anymore, nor are the suburbs. So this cycle will come about, and if we're willing to think differently, about more diversity, about cities that are less gentrified, [we can have] cities that are more alive.

Carroll

I agree totally. I'd suggest that, if people are interested in following this sort of thing, there are a couple of model city projects they could watch. One is in Saudi Arabia, where they're spending something like a trillion dollars to build a city of the future. It sounds a little crazy to me. But they're spending a lot of money on it, and there could be some interesting ideas coming out of that. There's also a much smaller effort by Toyota, which is doing something on the slopes of Mount Fuji. That will be quite interesting. It's really trying to reimagine how a city could be designed… for people rather than just for the transportation.

Leonard

Paris is the ultimate example of gentrification and of urban flight and all the layers to that, But the city has been reinventing itself. Paris has always had a lot of trees, but they've also opened up the Seine to swimmers. I have not been in Paris for a while, but Paris has become a big model that the World Economic Forum has been discussing. Urban forest, urban trees, it's better for health, it helps people live longer. Quality of life: Folks like to be next to that. That also becomes a driver of property prices…. Property next to green spaces in New York and in many other cities is some of the most expensive property. Many cities -- such as Paris, New York, cities on the West Coast, Mexico City -- are making a great effort in this area. Trying to bring urban forest is a way to make the cities more attractive. I think Vienna actually has a fantastic project from the ‘60s that featured some of those garden towers that we see.

Carroll

I spent a lot of time in Paris in the ‘80s, when I lived in Brussels. Paris is probably my favorite city in the world. I'll have to go back. I have not spent much time there in the last 10 years or so.

Leonard

It's the most beautiful city,

Carroll

I agree. It’s easier for you, though, because you speak French, whereas I speak pidgin French.

So this was great, as always. I really appreciate your taking the time. I would encourage people, as always, to follow you and the efforts of the Triple-I -- that is, iii.org. And then, of course, to check out InsuranceThoughtLeadership.com and sign up for the weekly newsletter, Six Things, in which I get into topics like this is often as I can.

Thanks, Michel.

Leonard

My last words, Paul, are going to be: Do not go see Godot. It's terrible.

Carroll

I've avoided it so far, and I will avoid it from now on.

Leonard

This was great. Thank you so much, Paul.

KEY TAKEAWAY:

--An organization’s goal should be to put in place a common resource allocation tool and real-time reporting mechanism while standardizing activities and roles aligned to individuals.

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As the possibility of a global recession continues to be raised by economic prognosticators, insurers are looking for innovative ways to tighten their belts. One option is slashing labor costs. However, the talent crisis plaguing the insurance industry means mass layoffs are ill-advised—400,000 insurance employees are predicted to retire within the next few years. Adding to this challenge, the generation that would theoretically be replacing the retiring generation has little interest in doing so—eight out of 10 millennials surveyed had a limited understanding of the wide-ranging employment opportunities the insurance industry can offer. 

Savvy companies recognize layoffs can stymie an organization's future growth once the macroeconomic outlook flips bullish; instead, they’re figuring out how to prioritize, measure and manage capacity—to put the right people on the right projects and ensure effective and efficient execution.

One underused method is developing structured approaches to resource allocation. Approached in a traditional, system deployment-led way, this process can often take more than a year to implement. However, it’s now possible to realize gains in resource management and efficiency much more quickly. And there’s never been a more critical time.

Better resource management boils down to prioritizing and sequencing how to allocate talent to new or existing projects. In a recent survey of 39 companies, Resource Management Institute (RMI) concluded there are many areas that are ripe for big gains in efficiency. They learned that forecasting and capacity planning, along with developing a skills inventory, continue to require improvement. Governance was another area where vast improvements could be made. Without introducing good forecasting, supported by a more exacting skills database, the resource management process remains largely ineffective, and failures are inevitable.   

A more disciplined strategic road map will help insurers avoid spending time and resources on projects that are lower-priority. Some of this process involves figuring out which projects are either strategically important to the firm’s long-term vision or produce the most short-term profit—but prioritization is only part of the needed input. The success of the approach hinges on understanding what projects people are currently working on and what they’ll be tackling in the next three to six months, then identifying priorities from the top down, ensuring that sufficient resources are allocated to prioritized matters and getting a real-time picture of how people have been allocated and how projects are staffed.

Briefly put, our recommended approach to redesigning the process distills down to having a formalized, centralized, standardized demand management/intake process, cross-organization capacity planning and the right tracking and reporting tools.

Done manually, getting just a snapshot of current project staffing can take a month or more, but with a little help from data science it’s possible to get this down to near real time. With an accurate view of where gaps exist, more advanced questions can be asked, such as, “If key projects are not properly resourced, is it possible to pull people from other, less important internal activities to deliver the projects on time without having to hire new hands?”

An organization’s goal should be to put in place a common resource allocation tool and reporting mechanism while standardizing activities and roles aligned to individuals. While it’s possible to start with Excel spreadsheets, ideally companies will want to move on to a more specific resource management software tool. Data that previously took weeks to collect becomes immediately visible.

Traditionally, insurers use internal systems to track their own resources’ time on projects, but often these tools don’t provide a broader view of what is happening now or what should be happening going forward. Additionally, in our experience, time tracking is often a neglected area of resource management.

Establishing a feedback loop between historical time tracking and forward-looking resource planning is critical. By analyzing historical data, a firm can have more reliable estimates of any new project’s resource demands and completion timeline, which can then be used for more accurate projections. In addition, in this tight labor market, you certainly don’t want to lose good people because you are burning them out—it’s important to have reliable data to identify people who are overworked and enable discussions about how to remedy this situation.

A handful of insurers are catching on to this need, and in an economic environment where revenues are not necessarily growing—indeed, when fast-growing revenues are no longer present to disguise inefficient processes—there’s a strong motive for taking a strategic approach to solving the resource gap. It’s not going to be solved simply by recruiting, hiring more contractors or going to the market and paying bonuses to hire people away from competitors—warehouses and logistics are currently the only industries with a positive correlation between signing bonuses and application rates. In this tight market, increased use of an insurer's existing workforce becomes the more attractive option. 

However, modernizing an insurance company’s resource management practices doesn’t just mean implementing a data-collecting tool. There’s a cycle, with a process for getting the right data and then using it correctly. The dashboards and the management process must work in concert with each other.

For example, one insurance organization we’ve worked with believed at the outset that they had a large gap of resources in project delivery, even though they did not have any evidence other than anecdotal feedback from managers. A high-level initial analysis seemed to indicate that the gap in resources was greater than 60 total people, representing more than 20% of their workforce. Data was fed in and a rigorous process established, role data was set accurately (e.g., “Is a data manager also a developer?”) and analysis took place of people, projects and time horizons. The gap reduced to a much more manageable 20 resources. 

With the right details, the gaps for specific roles on specific projects became clearly visible and an action plan was detailed on how to address each gap. It became possible to trust a “single source of truth” for resource allocation, no longer relying on multiple ad hoc spreadsheets of questionable accuracy. It now became possible to answer resource allocation questions in a few minutes, when in the past this would have taken a week.

See also: Value of Optimized Resource Planning

Spread that approach across an entire portfolio of projects and you can have a large overall impact in time savings and efficiency of staff use. Part of the problem, particularly during COVID, had been the lack of physical cross-team communication. But by doing a better job of using digital resource management tools, insurers can bridge this gap. Though some organizations have invested significantly in incorporating cutting-edge software to do this, the investment is frequently lopsided—optimizing individual silos as opposed to taking a broader view across the entire value chain or across different organizational teams.

While it might be tempting to make sweeping overhauls of the resource management function, insurers must remember that the most effective changes are gradual. There are several intermediate stages between an organization’s current reality and its goal. The first step toward using resources effectively is to implement monthly resource management reviews focused on identifying resource gaps, their impact and how to address them. If an organization has no resource management to speak of, a simple manual Excel process can be the steppingstone needed before incorporating more sophisticated and automated tools.

RMI’s recent survey looked into factors that prevent the efficient use of resource management tools. They found that 54% of organizations have no access to real-time project key performance indicators (KPIs), and nearly 35% of project managers formulate resource plans using Excel. A full 77% of survey respondents were not using resource management software to generate “what if” scenarios. Many of those surveyed expressed distrust and frustration with the current state of digital resource management tools. The areas for improvement they identified were varied—forecasting and capacity planning (83%), reporting, dashboards and data analytics (79%), skills development planning (65%), skills inventory and database capabilities (64%) and project staffing (52%). While the greatest deficiencies they identified remain unchanged from year to year, a desire for skills development capabilities has been gaining ground, up 13% from RMI’s previous survey.  In short, resource management software could be used more effectively. 

Once an insurer has spent time mastering the fundamentals, they’re free to add packages that contain advanced technology and analytics. However, overlaying new software onto an organization’s deficient resource management function isn’t an instant fix—the software must be tailored to the unique goals and gaps in the organization. Incorporating management software can bring about more questions than answers, often shedding light on other deficient areas in a company’s infrastructure.

In RMI’s research, 64% of those surveyed said that even after their resource management software was implemented, it still lacked some of the features they needed. 56% of participants claimed their software lacked integration with other front- and back-office systems for forecasting. Even after the incorporation of modern tools, one weak link in the chain can still invalidate much of the software’s impact.

In the post-pandemic landscape, achieving a cross-organization view is easier said than done. The prominence of work from home means project staffers operate in an increasingly fractured and isolated environment. As a result of the atomization of the workforce and separation of teams, it’s difficult to achieve an integrated view across the entire project portfolio. But it can be done.

By integrating a centralized demand resource management process with better use of resource management software tools, organizations can run leaner and more appropriately staffed projects.

KEY TAKEAWAYS:

--Security teams often have to play whack-a-mole, addressing cybersecurity issues as they occur but without getting ahead of malicious actors.

--Integrating new technologies--Digital Risk Protection Services (DRPS) and External Attack Surface Management (EASM), integrated with Attack Surface Management (ASM)--gives companies a comprehensive, automated view so they can identify and manage vulnerabilities and potential entry points for threat actors.

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Given today's expansive digital landscape and widening attack surface, the volume of threat intelligence data has reached unmanageable levels. Security leaders must reduce organizational threat exposure across a rapidly proliferating attack surface but typically lack the means to identify the threats that pose the most significant risk to their organizations. Security teams play whack-a-mole, addressing issues as they occur without getting ahead of malicious actors.

Cyber threat intelligence plays a vital role in cyber warfare and is no longer a "nice-to-have" but a "need-to-have." With the right tools, teams can derive critical insights into the emerging tactics, techniques, vectors and procedures that could expose their network to attack. But selecting the right threat intelligence products and services to maximize business value is not easy. This article provides an overview of the threat intelligence space and offers a guide for how to find the right solution(s). Essential points include:

• The importance of context and accuracy in threat intelligence offerings
• The convergence of CTI, DRPS, and EASM
• The role of data analytics and automation in threat intelligence
• The need to tailor predictions and risk assessment according to business criticality

Gain an accurate picture of the threat landscape through context and accuracy

The value of threat intelligence depends not only on the relevance and timeliness of the information. Perhaps more importantly, threat intelligence must provide critical context about threat actor groups and their tactics, techniques, procedures, vulnerability exploits, indicators of compromise and more.

For example, through the combination of advanced AI, machine learning and processing and analyzing comprehensive data from millions of online and dark web sources, organizations can receive early warnings of potential risk to their network. When threat intelligence blends context about each organization's unique attack surface and assets, security teams can operate more efficiently, knowing that they're taking action to mitigate the most urgent, dangerous threats to their corporate environment.

See also: Say Goodbye to Cyber's 'Dating Profile'

Integrate CTI, DRPS and EASM for a comprehensive view

With so much at stake and so many dollars invested in a wide range of cybersecurity solutions, organizations need to prove the value of their security stack. This need drives companies toward consolidating vendors and products to simplify their solution suites. As a result, threat intelligence vendors are beginning to integrate features from adjacent markets, such as Digital Risk Protection Services (DRPS) and External Attack Surface Management (EASM).

With DRPS, companies proactively monitor their digital footprint across the surface web and underground sites, forums and marketplaces, identifying and mitigating risks. Integrating EASM discovery capabilities with Attack Surface Management (ASM) gives companies a comprehensive view of their unknown externally facing assets so they can identify and manage vulnerabilities and potential entry points for threat actors. By combining these solutions with threat intelligence, organizations gain a unified view of their complete asset inventory and overall threat exposure.

Enhance CTI outputs with data analytics and automation

In its Market Guide for Security Threat Intelligence Products and Services, Gartner notes that analytics, data science and automation are becoming critical components of threat intelligence solutions. These capabilities can significantly reduce the time and effort needed to operationalize threat intelligence across large, mixed datasets.

CTI that autonomously infiltrates deep, dark and clear web sources enables frontline defenders to extract, process, correlate and analyze data in real time. These benefits are more significant when adding features like graph analytics, link analysis and rich threat actor modeling.

Additionally, advanced capabilities like entity extraction, visual graph analyzers, peer network analysis and a customizable dashboard interface help organizations understand their threat exposure at a glance. In essence, next-generation CTI solutions that blend robust analytics with automation and other cutting-edge capabilities give customers powerful data to rapidly respond to critical threats and mitigate risks before they can be exploited.

Tailor predictions and risk assessments according to business-criticality

Organizations can optimize their threat intelligence investments by developing a CTI program tailored to their unique business needs, risks and objectives. By refining threat intelligence with the organization's critical internal context, security teams can filter out irrelevant data and focus on the threats and insights that matter most. Additionally, business executives are better equipped to prioritize resources.

These benefits are another reason for integrating an EASM solution with CTI. EASM continuously discovers and classifies known and unknown networked assets that could expose an organization to risk, while combining the two technologies enables companies to tailor threat intelligence to their unique attack surface. 

See also: Cyber Insurance Market Hardens

Conclusion

The rapidly expanding digital landscape and proliferation of potential attack vectors have created an increasingly complex and challenging environment for security teams. The accelerated pace of technological advancements means that manual and hybrid solutions are no longer adequate to protect the expanding attack surface at the scale and sophistication of emerging threats. Threat actors increasingly leverage AI and automation, making it imperative for security vendors and defenders to incorporate these technologies in their cybersecurity strategy.

KEY TAKEAWAYS:

--We saw that there were nonprofit and government agencies that were getting neurodistinct individuals ready for employment, but the big question was: Who's getting employers ready? We exist to be a connection between employers and this untapped neurodiverse talent pool.

--Business partners who sign up and commit to hiring and advancing neurodiversity and disability inclusion through NTW will receive neurodiversity inclusion training courses for managers and access to neurodiverse job candidates, 70% with bachelor’s degrees, who will be pre-screened and trained in workplace etiquette, as well as insurance principles, insurance management systems and insurance transaction basics.

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Every July, organizations commemorate the passage of the landmark Americans with Disabilities Act (ADA) in July 1990. Disability pride is defined “as accepting and honoring each person’s uniqueness and seeing it as a natural and beautiful part of human diversity,” according to the Disability Community Resource Center.

Disabilities are unique and can encompass a range of conditions, both apparent and not apparent, and with varying degrees of impact. Neurodiversity embraces a diversity of minds and encompasses non-apparent conditions such as autism, dyslexia and ADHD.   

Inclusion for neurodiversity celebrates the strengths of all minds and responds to challenges without shame, removing the stigma and misperceptions of capabilities that for far too long have been attached to having a disability. It also highlights a segment of the disability community that has often been overlooked because of its non-apparent nature.

Finding and screening job candidates was the No. 1 issue facing independent insurance agencies in 2022, according to the 2022 Agency Universe Study—retaining its position as the top challenge from 2020. However, despite representing a skilled, educated, untapped talent pool, neurodiverse candidates are largely underemployed and represent a solution to independent insurance agencies’ talent problem.

Neurodiverse minds have unique ways of interpreting the world around them, thinking, communicating and processing information. In many professions and day-to-day tasks, their distinctiveness offers certain advantages, such as memory, mathematics, concentration, data analysis and pattern recognition Neurodiverse individuals might need accommodations in the workplace due to various vulnerabilities because of their mind’s profile, including susceptibility to loud noises and stimuli or different needs for processing information and communicating. What many employers do not know is that these accommodations are low-cost and actually help an entire team perform work more effectively; they are rooted in what enables every mind to perform optimally.  

In an open letter published in 2021, Sir Richard Branson, founder of the Virgin Group, remarked, “The world needs a neurodiverse workforce to help try and solve some of the big problems of our time.”

Between 15% and 20% of the population is neurodiverse, according to the National Library of Medicine, which includes up to 10% of people who are diagnosed with dyslexia, 6% with dyspraxia, 5% with ADHD and 1% to 2% with autism.

According to recent estimates from the Centers for Disease Control and Prevention, 1 in 36 children is on the autism spectrum. 50,000 teenagers with autism leave school each year, and there are now approximately 2.5 million adults with autism living in the U.S., according to the advocacy organization Autism Speaks. Underemployment in the neurodiverse demographic is exemplified in the fact that only 22% of autistic adults are in any form of employment, according to the National Autistic Society. 

See also: Keys to Finding and Nurturing Talent

To address the 80% unemployment rate, my co-founders and I started NeuroTalent Works (NTW), a nonprofit dedicated to advancing neurodiversity inclusion and employment in the workplace, and in July 2023 launched a (Neuro)diversity in Insurance Job Training & Hiring Program in partnership with the California Department of Rehabilitation. This industry-specific program encourages and enables job opportunities in the insurance industry for individuals with disabilities and neurodistinctions. Through partnership with Insurance Community University, job candidates are provided training on fundamental principles of insurance.

Initially focused on autistic job candidates, we have branched out to all neurodiversity and have a two-pronged approach, connecting business readiness and talent readiness for neurodiversity inclusion and employment.

We saw that there were nonprofit and government agencies that were getting neurodistinct individuals ready for employment, but the big question was: Who's getting employers ready? We exist to be a connection between employers and this untapped neurodiverse talent pool.

Business partners who sign up and commit to hiring and advancing neurodiversity and disability inclusion through NTW will receive neurodiversity inclusion training courses for managers and access to neurodiverse job candidates, 70% with bachelor’s degrees, who will be pre-screened and trained in workplace etiquette, as well as insurance principles, insurance management systems and insurance transaction basics.

As we started working with business partners, we started to see that there's a difference between being ready for employment and being ready for a professional setting where there are many hidden rules of the workplace. We provide what we call "final-mile training" to debunk some of these unwritten rules of the workplace that some of us might pick up on but someone with autism might not pick up on as easily.

A key part of the employee readiness portion of NTW’s training is interviewing, which is the biggest barrier to employment for the neurodiverse community because the traditional interview relies on oral communication and persuasion skills. NTW attempts to overcome this barrier by using skills-based interviewing, including training on a mock agency management system (AMS), to prepare candidates and provide a medium for demonstration of skills and experience of their capabilities to employers. This provides a more equitable approach to hiring and enables all candidates to demonstrate and showcase their skills for a job.

The program also offers employers a grant for the first two weeks of employment of individuals hired through the initiative. In addition, NTW will provide six months of support and coaching over 25 sessions post-hire to facilitate talent onboarding and a smooth transition for both the new hire and hiring manager.

One of the companies that first signed up for our program—and gave NTW the impetus to delve deeper into the insurance industry—is Weaver Insurance & Associates in Acadia, California, which was recently announced as a monthly winner of Liberty Mutual and Safeco’s Make More Happen program. 

Make More Happen partners with independent agents by awarding grants to nonprofits that agencies support, as well as providing social media and public relations support to help agencies spread the word with awareness campaigns.

“We met [with NTW] to discuss their business plan, and, at the time, they had not landed on an industry to work with,” recalls Dana Dattola, agency principal of Weaver & Associates. “We suggested insurance due to its detail-oriented tasks that require skill and knowledge.”

After hiring her first employees, Dattola found that “training posed challenges as we lacked established processes and procedures. But this turned out to be beneficial for all employees, not just those who are neurodiverse, as it enhanced our training methods.”

Despite some challenges, as with any new hire, “the benefits are great,” Dattola says. “You have employees who are grateful for their job, try their hardest and don't tend to burn out or skip steps in processes.”

“There are so many smart individuals looking for good, long-term jobs,” she adds. “Staff turnover is the toughest thing with owning a business, and I feel that once you make the investment in the staff, you have more loyalty than from your average employee because they are grateful that someone gave them the opportunity and took the time with their training.”

The talent shortage, particularly for entry-level roles, has encouraged agencies to look offshore for assistance with repetitive and administrative tasks. However, those companies face similar turnover issues. 

See also: What Are Insurers’ Top Talent Objectives?

But the neurodiverse, and specifically autistic, community can thrive in routine and predictability and are detail-oriented, and many would want to continue such work for several years. Some companies that hired with us ended up letting go of a couple of their outsourced workforce companies so as to invest in the community, do something meaningful and give an opportunity to a community that's been so overlooked.

Among the other benefits of hiring neurodiverse candidates are cultural benefits to the agency, specifically in the eyes of younger employees, who more frequently demand that their employers are engaged with community-focused and charitable initiatives and demonstrate their commitment to diversity, equity and inclusion through action.

But most of all, managers who work with us tell us it’s the most meaningful thing they’ve ever done in their careers because it’s made them a better manager for all their people. When you understand an individual’s needs—both their challenges and strengths without shame—you’re going to be a better manager for everybody, not just an individual.

To learn more and hire from NeuroTalent Works’ (Neuro)diversity in Insurance program, visit: www.neurotalentworks.org/insurance.

KEY TAKEAWAYS:

--One of the core problems that makes it difficult for large carriers to innovate with their data and IT strategy is the scattered architecture that is the logical result of growth and acquisitions over a long time. To address the challenge, many insurance IT leaders and consultants propose a central data lake or enterprise data warehouse that gathers all the data into one place. But it’s extremely difficult to execute a data lake or data warehouse project, and it usually takes years and hundreds of millions of dollars to implement.

--There is an often-overlooked alternative that stems from the microservices architecture that many startups have adopted: a federated data architecture. Instead of moving all the data from the different sources into one central location, a query layer is built on top of existing data sources and only gathers data upon request. What makes this approach much easier to set up and maintain is that there is no need to configure the architecture for storing and maintaining a large amount of data. 

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With all the buzz around generative AI, P&C carriers are rushing to evaluate how and where to best apply this emerging technology. But is the insurance industry ready for this next wave of innovation, or are the same limitations that have limited real progress in the past a cause for concern? 

There are positive signs. Recent innovations in data querying, caching, pipelining and transformation should give insurers reason for optimism. In fact, I’d argue that these innovations in underlying data architecture are as exciting for our industry as the changes we’re seeing in AI – if not more so. This article looks at how federated data graph technology can help carriers overcome long-standing obstacles in harnessing their data to fully unlock insurance’s AI moment. 

Insurers Can No Longer Afford to Underuse Data

One of the core problems that makes it difficult for large carriers to innovate with their data and IT strategy is the scattered architecture that is the logical result of growth and acquisitions over a long time. Of the top 10 P&C carriers in the U.S., the newest kid on the block was founded in 1937. This creates a multitude of challenges: There is a huge barrier for data engineers and analysts to derive actionable insights across different systems, and every new initiative takes 10x the time because it involves multiple data migration projects.

To address the challenge of disparate data, many insurance IT leaders and consultants propose a central data lake or enterprise data warehouse that gathers all the data into one place. Although this approach can solve the problem, it’s extremely difficult to execute a data lake or data warehouse project, and it usually takes years and hundreds of millions of dollars to implement. 

Building the jobs that move all data from different sources into one place is not easy, and even though there are open source solutions available, maintaining and building them requires skilled staff and can be prohibitively expensive. What’s more, once the data has been moved, it often requires significant transformation in the context of any given business use case.

In the case of mainframe data, for example, making even a minor change to the data format is non-trivial and may require workarounds because the people who know how to work with mainframe data are now few and far between. One global P&C insurance carrier we work with built a data lake, only to realize, after the multi-year project was completed, that they needed a way to transform the information from the data lake back into the mainframe format to keep their current business running. All this means that the promise of building applications on top of your data lake always seems “just around that next corner.”

Data Volumes Outpace Architecture 

According to Stanford University’s AI Index 2022, it is now a proven fact that data grows faster than Moore’s Law. In other words, the amount of data we collect tends to grow more quickly than the growth of our computing power and processing efficiency. This means data lake spending will only increase, just to maintain the large amount of data an insurance carrier collects year after year.

This issue manifests itself across the enterprise and is often felt acutely by front-line underwriters and operations staff who struggle to turn mountains of data into insights they can actually use to guide risk selection and portfolio management decisions. Underwriters routinely tell us that they aren’t swimming in data, they’re drowning. As a whole new generation of innovators continues to build more sophisticated data-driven insurance products – telematics, anyone? – these problems become worse, and the back-end IT challenge of data organization grows exponentially.

Consider a Federated Data Layer Versus a Data Lake

If an insurer is willing to pay and has the patience, the data lake may make sense long-term. But many carriers are under increasing pressure to implement new underwriting applications right now to improve the workflow and boost underwriting productivity and performance. They’re also working to come to grips with emerging risks like climate-change-related natural catastrophes, cyber attacks and social and economic inflation. For insurers that do not have a decade to wait, there is an often overlooked alternative that stems from the microservices architecture that many recent technology startups have adopted: a federated data architecture. 

Instead of moving all the data from the different sources into one central location, a federated data layer is a query layer built on top of the insurer’s existing data sources that only gathers data upon request. What makes this approach much easier to set up and maintain is that there is no need to configure the architecture for storing and maintaining a large amount of data. 

Using open source solutions like GraphQL and Apollo, insurers can implement the query-able data layer in less time than it typically takes to establish a data lake. Once the query-able layer has been established, the bulk of the work that remains to set up an agile and configurable federated data architecture is mainly in building out specific connectors for every source of data.

On top of shortening time-to-value versus a data lake, the federated data graph gives the end user the ability to access data in real time, which is great for building modern applications (for example, dynamic dashboards or workflows) on top of existing databases.

In an interview with Carrier Management, Greg Puleo, vice president, digital transformation at QBE North America ,explained the power of a modern underwriting application that leverages an underlying federated data graph: “We now have the chassis that we can start to bolt other things to, and all those other data providers now just become an API [application programming interface] integration seamlessly in the workflow. The underwriters can make better decisions using that data without having to do extra steps.” 

Challenges like retainment of data, change control and disaster recovery remain at the individual data sources, which most likely were set up to solve these challenges in the first place. As the insurance industry goes from static analysis and historical data to more dynamic and AI-powered models like "predict and predict," the ability for end users to access relevant data and insights in real time is essential.  

A Few Caveats

A federated data layer is not a “solve it all” remedy for an insurer’s ills. There are real challenges in maintaining the schema as data changes, and building customer connectors is not always an easy task given the number of legacy databases still around.

Today’s most popular policy administration systems and other core insurance systems are already 20-plus years old and are not designed for easy data access and sharing outside the system – and as insurance technologists know all too well, there are still mainframes and AS/400 midrange servers lurking in dark corners of the data center. 

Insurers Don’t Have to Do It Alone

The right insurtech partner can be of enormous value in helping insurers build out a modern data architecture in lockstep with efforts to build new applications and workflows. Insurers should look for partners who share their vision of how better data can fundamentally transform insurance and who have demonstrated experience in employing advanced technologies and architectures to solve long-standing data issues. In addition to augmenting internal IT resources and expertise, an insurtech partner often serves as a forcing function, motivating internal IT teams to move projects to the finish line.

"From a business perspective, we weren’t looking for a vendor,” Thomas J. Fitzgerald, former president of commercial insurance at QBE North America told Carrier Management. “We were looking for a partner. We were looking for somebody who could ultimately come in and understand the myriad needs that we had, and had the flexibility and the agility to come along on a journey with us." 

As with any large-scale change, it’s essential to have a destination in mind and to focus on what you’re trying to improve for your end users and the business. In this way, you can avoid “data modernization for its own sake’ and ensure that modernizing your architecture happens in the context of meaningful innovations to core insurance processes and workflows – things that can actually affect your users and lead to better business outcomes.

A Real-World Insurance Use Case

Let’s look at a real example of why a federated data graph can be advantageous from a business and end user perspective. Underwriters have three main levers that they can manipulate when balancing their portfolio: rate, retention and new business. The business challenge is that these levers often seem to work counter to one another. If you increase the rate for an account, for example, it may hurt your ability to retain the client when the policy comes up for renewal. It’s a constant balancing act for front-line underwriters to navigate the inevitable tradeoffs among rate, retention and new business.

So, let’s say you want to calculate your retention. Sounds easy, right? But not so fast. If policy administration information is dumped into a data lake or enterprise data warehouse, it is often dumped partially or without full context. For example, total premium on a property schedule and premium by coverage might be available for analysis, but premium by building/location or in relation to total insurable value (TIV) may not. 

Down the line, when the business wants to build a simple retention dashboard but chooses to calculate retention on a "same exposure" basis (i.e., accounting for changes in buildings or the value of those buildings, not just new premium/old premium), they often cannot do it. Inevitably, the data about the exposure base is trapped in two worksheets, one from each year, and so yet another worksheet is created to take those exposure bases and the premium values and calculate a simple metric.

When an organization builds a business-centric application using a federated data graph with direct connection to data sources, they often get ahead of the transformations for simple core metrics like retention. A data graph forces the business to organize their data in a way that is aligned with how the business operates, saving an enormous amount of time and effort down the road. 

In other words, without investing an appropriate amount of time into getting data into the format the business can actually use to measure its effectiveness and progress toward organizational goals, a data lake is simply a lake/sink. This often renders future application builders helpless – the data lake contains hundreds of thousands of data points, but the relevant data they need remains inaccessible.  

From the business perspective of empowering end users, a hybrid approach that recognizes that sometimes a given application needs to be built in a federated way to be most effective makes more sense than an “all or nothing” approach that forces application builders to build their apps on top of a data lake. Ultimately, the business and IT need to think about the form factor in which data needs to exist to empower their users to achieve their goals.

Summing Up

As the insurance industry eyes a potential AI arms race, the carriers that will gain a real advantage from AI will be those that can harness their underused data investments to drive meaningful advances to core insurance processes. Federated microservice-based architectures and data graph technology provide insurers with a viable alternative to data lakes as a means of tackling legacy tech debt and bringing much-needed agility and data-driven innovation to insurance.

KEY TAKEAWAYS:

--We have inadvertently allowed the insurance story to become an amalgamation of carrier advertising, less-than-flattering attorney commercials and the media’s appetite for bad news. Insurance needs to talk about its noble purpose and reclaim its brand in the world.

--Flexibility is also key because the needs of both the organization and its employees evolve. Companies need to master the selection and transformation of existing employees into new roles that blend business expertise with analytical and technical acumen. Some of the expert talent that is quitting due to lack of a perceived career path, or retiring, could be the strongest candidates for these new positions.

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The insurance industry continues to find itself in a talent crisis. The workforce challenges we are facing are not entirely new. Some are the lasting impact of the pandemic, while others have come and gone over time as a result of a changing world.

There are some challenges that I believe are self-inflicted, albeit unintentional. The good news is that they are also within the industry’s power to change. It won’t happen overnight, but let’s get started. Because people are the industry’s most valuable asset and are at the heart of everything we do, doing nothing cannot be an option.

People do not want to join the insurance industry

Younger members of the workforce do not see a career in insurance. Only 4% of respondents to The Hartford’s 2015 Millennial Leadership Survey found insurance to be appealing. And ACORD’s 2020 survey found even less interest from the generation that will make up 75% of the global workforce by 2025. Keep in mind that only 25% of insurance employees are under the age of 35.  

People are leaving the insurance industry

The insurance industry will lose half its workforce between now and 2036 as almost 400,000 employees retire. Most P&C carriers expect to increase staff during the next 12 months but are finding most positions challenging to fill and are facing more than 10% voluntary turnover. The hiring pool is limited for both entry-level and experienced talent; 65% of people leaving an insurance job also exit the industry. The leading reason why employees quit is a need for more career development and advancement.

Our call to action

Insurance needs to reclaim its brand in the world. This is above and beyond the hard work that individual carriers, brokers and agencies do to articulate and reinforce their products, services and experience. I am referring to an industrywide effort for insurance to take back its voice to tell its own story. Borrowing a page from Simon Sinek’s “Start With Why,” we can state that insurance has a noble purpose and a critical reason to exist. But we have inadvertently allowed the insurance story to become an amalgamation of carrier advertising, less-than-flattering attorney commercials and the media’s appetite for bad news. 

Insurance has a compelling and unique talent story that, if told, can both drive employee engagement and strengthen recruiting. If you’ve not worked within an insurance organization, all you may understand comes from a few insurance interactions and advertising. You wouldn’t have had the exposure to realize there is work that matches any combination of creative, analytical and technical passions. You wouldn’t have the context to appreciate the motivation that comes with a larger sense of purpose.   

A multi-dimensional talent development strategy is critical to build an organization that operates both horizontally and vertically and can adapt to change. Companies need specialists and generalists for strategies and execution to have both a top-down and bottom-up perspective. Career journeys that are co-owned by the employee and employer replace a career path predefined by the company. Flexibility is vital to recognize that vertical and horizontal journeys are not mutually exclusive.

Flexibility is also key because the needs of both the organization and its employees evolve. Technology has been driving change within insurance for a long time, requiring the elimination of some roles and the creation of others. AI keeps accelerating the rate and pace of change, as seen most recently with generative AI. Companies need to master the selection and transformation of existing employees into new roles that blend business expertise with analytical and technical acumen. Some of the expert talent that is quitting due to lack of a perceived career path, or retiring, could be the strongest candidates for these new positions.

My advice to all employees is to have a goal for their next potential role but also keep their peripheral vision unblocked. Their best next move could be something in a completely different area or perhaps a role that doesn’t even exist yet. I offer that guidance from my own career journey.

The next time someone asks you what you do in the insurance industry, don’t forget to include your “why.” I confess that I paused for a moment the first time I was asked why I chose to become a claims adjuster as my first job after college. Then it all came back to me, along with a great sense of pride and gratitude.

We love to think about disruption as simply a modern-day term. Yet four historic industrial revolutions offer ample evidence that disruption occurs far more frequently than we might ever imagine.

Each of the three past industrial revolutions has ushered in seismic change: The original Industrial Revolution was powered by steam, the second was driven by electricity, assembly lines and mass production and a third industrial revolution introduced computers and the internet. Industry 4.0 —where we find ourselves today — is moving exponentially faster than its predecessors. Defined by digital transformation, connectivity and the rise of real-time data, Industry 4.0 has already evolved from on-premises to the cloud and from intricate programming languages to no-code. Now, it is embracing AI and quantum computing.

As Industry 4.0 shifts the world around us, it also creates tremendous opportunity to shape insurtech solutions and the insurance industry in incredible ways for those ready to embrace it. 

Insurance through each revolution

Insurance, of course, pre-dates all four industrial revolutions. Historic points that involved or created insurance opportunities include the advent of benevolent societies to aid ancient Greeks with burial costs, the Spanish maritime explorations that led to the discovery of America, the Great Fire of London, the discovery and proliferation of electricity, the introduction of the automobile, the rise of computer hackers and countless other pinnacle moments. At each point, societies have progressed, in part, either because insurance has been interwoven in these efforts or because insurance products developed because of those pivotal developments. 

The insurance industry has provided peace of mind the world over with each evolutionary step of humanity and technology. With steam engines and railroads, the telegraph and steel mills, electricity, nuclear energy and the advent of the internet — humanity made gigantic strides, and, in each instance, insurance adapted accordingly.

See also: Embedded Artificial Intelligence (AI) in Financial Services

Why Industry 4.0 is radically different

While insurance historically advanced with societal progress, the actual insurance product — the agreement that obligates an insurer to cover a policyholder’s risks — remained steadfast as a written, physical document.  

Arguably, the establishment of the Hartford Steam Boiler Inspection and Insurance Company (circa 1860s) was an astounding leap forward in industrial safety, as these insurers encouraged smart practices related to steam energy. Henry Ford’s assembly line led to a radical shift in how society moved. Computer technology took us to the moon. Again, at each step, that perennial paper insurance policy was a bedrock.

Industry 4.0 has changed that fundamental principle of insurance. As we move forward, the insurance policy itself, while remaining steadfast and reliable, is forever changed. That physical document is digitized, existing now as data, often in the form of a digital PDF and shareable with nearly anyone. This opens an incredible marketplace for insurers in an increasingly digital, connected global community leveraging technology as complex as satellites and as common as the ubiquitous smartphone. 

This radical shift in the constitution of insurance creates a challenge: How to increase the appetite for insurance to achieve greater market penetration? This is where insurtech will help to define the future of the industry.

What is possible for insurance

The rise of insurance as a digital product means our industry is inextricably tied to the acceleration of technological advances. Similar to the impact of the sewing machine or advanced robotics on our culture, the digitalization of insurance will drive the industry well beyond what was previously imagined. Solutions already exist that allow carriers, brokers and MGAs to design, rate, underwrite, quote and create products across multiple lines. As these tools grow in sophistication, they deliver higher levels of accuracy, allowing insurers to enter new markets more quickly and confidently.

Where our industry goes next will be defined by how technology transforms other areas of insurance. Consider the possibility for infusing new digital pathways into the claims settlement process. While there will always be a physical component — such as replacing windows shattered by wind or hail — tech giants like Amazon have already opened massive distribution channels for faster delivery of products needed to rebuild or repair as part of a claim. This gives insurers the potential to settle claims faster, so long as the supply chain can keep pace.

The most radical change to come is in another area of insurance that has remained static for nearly a century: the customer experience. As the relationship between technology and humans grows more symbiotic, there exists the potential for insurance to become increasingly entwined in people’s daily lives.

Consider a future state where people wear augmented reality-capable smart goggles or glasses— powered by AI — to receive information in real time. This gives insurers the capability to serve as a concierge, delivering in-the-moment risk management advice to keep customers safe. 

Imagine the transformative impact this could have on a family vacationing on Mt. Washington. First, they use their smart goggles to secure a rental car. Then, as they traverse the mountain in their vehicle, an AI-powered concierge notifies them if they are driving through high-risk areas and delivers real-time alerts as the road narrows and guardrails disappear. The family arrives safely at the top of Mt. Washington, they enjoy a one-of-a-kind experience and their safety is prioritized across every mile. Just as GPS changed how people travel, augmented reality and AI will reshape our relationships with all that surrounds us.

This future is closer than you might think. Industry 4.0 has created a paradigm shift in insurtech. The rigid legacy systems of the past have been replaced by more flexible, accessible and rapidly integrated solutions that have accelerated the delivery of new products. These best-in-class tools will give insurers the capabilities needed to combine the digital and physical worlds. From telematics to wearables, predictive modeling and virtual reality, insurance has the potential to continue its long history of being connected into the ways we live, the ways we do business, the ways we travel and transport goods, as well as the future we build.

See also: 'Law of Computability' Powers the Bionic Era

How will insurance careers evolve?

One of the unfortunate corollaries of the explosive growth in technology — and in AI specifically — has been the growing fear of massive job losses. Yet if there is one thing we have learned from past industrial revolutions, it is that, on a macroeconomic level, each job displaced by innovation gets replaced by one or more jobs in emerging industries. 

A great example can be found in both the times of the steam and combustion engines. Yes, wagoneers and barge captains fell out of favor as technology advanced. But the new technologies provided opportunities for retraining and creating entirely new industries. Long-haul trucking, much in the news of late, might never have come to be if society had looked on the combustion engine as a job killer for the horse and buggy business. In much the same way, we cannot be afraid to embrace these new and sophisticated technologies.

I am tremendously optimistic that as insurance grows more technologically sophisticated in the next few decades, the labor market will shift. While some roles may disappear, such as those in data entry, new and potentially better ones will emerge. What those roles might be is still largely speculative, but insurance professionals who commit themselves to upskilling will be rewarded for their ability to adapt and evolve.

Embrace a spirit of adventure

The golden thread through each industrial revolution has been the spirit of adventure. Johannes Gutenberg did not know exactly how his printing press would advance the speed of knowledge. Henry Ford had no guarantees his assembly line would revolutionize manufacturing. Yet they were unafraid to explore the unknown by employing the technology they believed would usher in a better future. 

Now, in Industry 4.0, it is time for insurers to embrace their own adventurous spirit. Those that answer the call and seize these digital opportunities will lead insurance to amazing new heights.